MARKET COMMENT
March 12, 2007
If you’re holding a subprime
mortgage either as a homebuyer or lender you must be wondering why.
Greed knows no bounds as homebuyers think
they can buy a rising asset on the cheap and lenders believe they can lay-off
these loans indefinitely.
But today, despite all this negative news, investors chose
to bid stocks higher based more on M&A activity then any dangers.
The pattern is the same as previously where
investors, armed with plenty of cash, are able to isolate and ignore problem sectors
and push prices higher despite light volume.
In style today were all the markets where “risk aversion”
was so dominant two weeks ago including Emerging Markets, semiconductors and
Small-Caps.
I have to say the action in the dollar is disturbing
especially as gold fell today.
And, no
doubt the decline in the metal will be attributed to declining energy
markets.
That “should be” just temporary
since gold’s relationship with the dollar is more significant.
Tomorrow is “show time” for two of “Da
Boyz”, Goldman Sachs and Lehman Bros.
It will be interesting to see how the subprime mortgage troubles are affecting them.
I would say probably there aren’t any
problems yet.
Pay attention in
particular to gains in proprietary trading.
This is where their status as a primary dealer really pays.
There’s a contagion occurring in the financial sector
spreading to homebuilders and anyone connected with mortgages.
We have earnings tomorrow from GS and LEH.
Then there will be more inflation data
followed by options expiry on Thursday and Friday.
In addition there’s always the
unexpected.
So we’ll be watching from a
safe distance.
Have a pleasant evening.
Disclaimer:
Among
other issues, the ETF Digest maintains positions in: EWA, EWJ, IEF and GLD.